Lloyds sell branches for give-away price

Opinion

Co-operative Banking Group and Lloyds Banking Group have signed a non-binding heads of agreement for Co-op to purchase the 632 branches of Lloyds Banking. The deal, known as Project Verde, arose out of a European Commission requirement for Lloyds to dispose of the branches. The Co-op is to pay £350m up front and dependent on performance up to £400m more spread over 15 years. Furthermore the subordinated debt Co-op will need to raise is underwritten by Lloyds Banking.

When the Co-op entered negotiations for the branches a figure widely circulated that it had bid £1.7bn, though this was never officially confirmed. It was later claimed NBNK offered nearly £2bn for the branches. As recently as last week a figure close to £1bn was expected to be paid for the branches.

An interesting comparison is that RBS, told it must dispose of 311 branches at approximately the same time as Lloyds Banking, agreed the sale in 2010 and was paid £1.65bn. It is true the RBS branches deal included some regional processing centres. Lloyds was limited by the fact that the other 4 top UK retail banks (Barclays, HSBC, RBS and Santander) were excluded from bidding. The regulator would also have appeared slow to evaluate both the Co-op and NBNK and make clear what requirements it would set to allow them to bid. The biggest cause of the give-away price must lie with Lloyds Banking management for not moving quicker to get the branches sold during a more optimistic banking environment.